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Managerial Accounting: Project Topic: Implications of The Mechanics of Managerial Accounting Group Name: Team AMBIGUOUS
Managerial Accounting: Project Topic: Implications of The Mechanics of Managerial Accounting Group Name: Team AMBIGUOUS
ACT 333
Section: 01
Project Topic: Implications of the mechanics of Managerial Accounting
Group Name: Team AMBIGUOUS
Prepared For:
Afrin Rifat
Lecturer
Department of Finance and Accounting
School of Business
North South University
Prepared By:
Name
ID
Nabila Tasnim
1220122030
Wasiuddin Ahmed
1210190030
1210525030
1230184630
S. M. Mostafizur Rahman
1210175030
Page 1 of 29
Letter of Transmittal
Dear Miss,
We are glad to submit you the report entitled Implications of the mechanics of Managerial
Accounting on a product. We manufacture a product called Globe Shaped Lamp. As we were
advised, we have successfully manufactured our product Globe Shaped Lamp for the mass
market by keeping a very competitive price and adding a small mark-up. It gives us immense
pleasure to tell you that working on this report has given us vast experience. We applied all our
knowledge gathered in this course to judge and evaluate the issues related with Managerial
Accounting and different costing methods. We believe this will be very helpful in our
professional life also.
It was truly a great honor for us that we were provided the opportunity to work on such a great
project. We hope you find this report satisfactory.
Sincerely Yours,
Team AMBIGUOUS
Page 2 of 29
GLOBESHAPED LAMP
Page 3 of 29
Abstract
According to our project requirements first we select a product that we can manufacture. In our
group we were five people and we choose to manufacture Globe Shaped Lamp as our product
which has some simple production process. By using our knowledge from Managerial
Accounting and different costing methods we analyzed the cost of our product Globe Shaped
Lamp and determined what will be our selling price by comparing it with our competitors and
made the master budgets. We also determined the break-even point in unit sales and in revenue.
Our production cost includes direct material like ball, glue, thread, socket, wire and holder. We
selected direct manufacturing labor hour as allocation base and calculated the labor hours based
on the total hours all of our five members worked by assuming that our group members are the
only labors available
We have planned to sell 140 units of Globe Shaped Lamp at a price of 799 taka in order to
make total revenue of 111,860 taka. After analyzing our master budget we found that our
operating income has a good-looking amount of 13,651 taka. Our margin of safety is 60,407.36
taka and the operating leverage is 1.85times.
Page 4 of 29
Content
Page Number
1. Product Background
3. Manufacturing process
5. Production cost
10
10
8. Full cost
11
12
13
15
16
17
18
24
25
25
26
26
27
Page 5 of 29
We choose Globe Shaped Lamp as our final product which is called showpiece lamp or electric
lamp. The lamp we selected is different from our countrys traditional lamp. Its mainly made of
thread which is available in everywhere and has various color. We choose violet color thread for
our lamp but we can make various colorful lamp for our customer. While making this lamp, we
used glue, thread, ball, holder, plug, wires, and socket as direct materials and rent, cleaning cost
& transportation cost as manufacturing overhead. People can use this lamp on the table or in
drawing room as a home decorator. We used 60watts soft-white bulb inside the lamp but can be
use anykind of bulb available in the market. To maintain a nice size and shape we use a medium
size ball. People can hang the lamp anywhere they like as it is easy to hang up. And its very easy
to light up the lamp. Only need to put the plug into the socket, and the light will be on. Mainly
interior designers use this lamp to design their artifice.
Purpose to select this product is the availability of the raw materials of making this product and
make some different that is not our traditional lamp. It also easy for us to make this product
within a short time. Even we can compete with other retailers with this product. Most
importantly, our group members were comfortable working this lamp and thought it as the best
option available for.
Now a days most of the consumers are looking for oriental and unique looking products rather
than traditional looking products that follow simple technological architectures, for decorating
their houses. Majority of lamp products are used by the interior decoration industry. Our
countrys local competitors are Deshi Dosh, Aarong and many single shop located at Badda,
Gulshan, Bashundhara and in various locality who are selling local and imported lamps. Some
online shops like Kaymu is also selling similar products in the market. The main previlage we
will get is the price! As our manufacturing cost is low we offered the lamp to the customer with a
very cheap and attainable price. Though some websites sell modern LED lamps which are very
cheap in price (around 300 taka). However, there is a problem with those product. As it uses
LED lights instead of traditional bulbs, the replacement of lights is not as easy as ours.
Traditional bulbs are widely available in the market and lasts longer than cheap LED lights.
The companies & shops we are considering as our competitors are mainly targeted the upper
middle class and upper class customers of the society whereas we are targetting the middle and
lower middle class along with upper middle class customer with our simple but nice looking type
of lamp. As we are selling the simple type of lamp at a very attainable price and have different
target customers than others we might say that we have no big competitors in the market! We
hope that effective price of our product will help us to increase our sells.
3. Manufacturing Process:
Page 7 of 29
4. Maximum Production:
Assuring that we are the only labors available to produce the lamp, we decide to work 9.00 a.m
to 6.00 p.m each day and will have an hour break in-between. So basically we will work 8 hours
a day.
According to our calculation if takes 0.5 hours to round the ball by threads, 2 days to dry it, 0.2
hours to detach the ball from thread and 0.2 hours for electrical connection.
So it takes 1.1 hours to make and 2 days to dry to produce a single lamp. Which mean a working
days of 8 hours we can produce (8hrs/1.1hrs) on 7.27 approximately 7 lamp each day and (722)
=154 lamp in 1 month which take 2 days to dry up. But the last 2 days lamps (72 days) or 14
lamps will not dry up within the month. So our total finished product will be (154-14) or
140lamps in a month.
5. Production Cost:
Page 8 of 29
70
9800 TAKA
120
16800
40
5600
SOCKET (1 * 15 TK)
15
2100
HOLDER (1 * 30 TK /
HOLDER)
30
4200
THREAD ( 2 OUNCE* 50
TK / OUNCE)
100
14000
TOTAL DIRECT
MATERIAL
DIRECT LABOR (1.1 HR
*200 TK/ LABOR HR)
375 TAKA
52500 TAKA
220 TAKA
30800 TAKA
DIRECT MATERIAL :
MANUFACTURING
OVERHEAD:
RENT
4000
CLEANING COST
300
TRANSPORTATION COST
200
TOTAL
MANUFACTURING
OVERHEAD COST
PRODUCTION COST
**32.14
4500
627.14
87800
As we are new in this business the main supporting cost we need is the advertising cost. Now a
days everybody is so much active in face book so we decide advertise our product in the
Facebook.
According to facebook policy we can fix a budget for advertising our product.
We budgeted we will be spending 6000 taka per month. Thus per unit advertising cost is (6000
taka 140 unit) 0r 43 taka (Rounded).
As we advertising on FB we will incur internet bill and electricity bill also as our support cost.
According to our calculation we have to pay 1000 taka as internet bill and 800 taka as electricity
bill.
The selling cost of our product will be the product delivery cost. We assume that we will spend
3000 taka to deliver our product.
Fixed
Variable
Indirect
Cost
Fixed
Variable
Prime
Cost
DIRECT
MATERIALS
BALL
GLUE
WARE
SOCKET
HOLDER
THREAD
DIRECT
LABOR
MOH :
RENT
Conversion
Cost
Page 10 of 29
CLEANING
TRANSPORTA
TION
SUPPORT
AND SELLING
COST
INTERNET
BILL
ELECTRICITY
BILL
PRODUCT
DELIVERY
COST
ADVERTISING
COST
8. Full Cost:
COST ITEMS
TAKA
VARIABLE COSTS:
VARIABLE MANUFACTURING COST:
BALL
70
GLUE
120
WARE
40
SOCKET
15
HOLDER
30
Page 11 of 29
THREAD
100
DIRECT LABOR
220
TRANSPORTATION
1.43
21.43
623.57
FIXED COST:
FIXED MANUFACTURING COST:
RENT (4000 TAKA/ 140 UNITS)
28.57
2.14
7.14
ADVERTISEMENT COST
42.86
80.71
FULL COST
704.28
9. Product Cost:
We select direct manufacturing labour hour as our allocation base.
Our budgeted manufacturing overhead rate is 100 taka per direct labour hour.
So the product cost is:
Page 12 of 29
TAKA
DIRECT MANUFACTURING LABOUR
COST
30800
154 HOURS
15400 TAKA
JOB COST
TAKA
DIRECT MATERIALS
52500*
DIRECT LABOR
30800*
MOH ALLOCATED
15400*
TOTAL COST
98700
705
Support
department
selling
Operating
department
Total( taka)
advertisemen
t
6000
production
maintenance
52500
4500
67800
Budgeted labour
hours
17.6
132
26.4
176
percentage
10
75
15
100
Budgeted minutes of
advertise
1848
462
2310
percentage
80
20
100
Budgeted overhead
cost
4800
Support work
finished :
By selling cost:
By advertising cost
Budgeted Overhead
Cost
Allocation of selling
costs(4800 * 10% ;
75%; 15% )
Allocation of
Advertisement(6480 *
80%; 20%)
Total cost after
allocation
SUPPORT
DEPARTM
ENT
SELLING
ADVERTI
-SEMENT
OPERATING
DEPARTMEN
T
PRODUCTIO
MAINTANA
N
NCE
TOTAL
4800
6000
52500
4500
67800
(4800)
480
3600
720
(6480)
5184
1296
61284
6516
67800
Page 14 of 29
Activity
Cost Driver
Total cost
Activity
Taka
Rates
Rent
4000
Cleaning
300
Transpiration
No. of Unit
200
1.43/Units
Internet Bill
1000
Machine hours
800
20/mhs
6000
No. of Unity
3000
21.43 units
Electrical Bill
Advertising
Delivery Cost
We allocated different cost driver to all the variable MOH and support costs to determine their
activity mates. As fixed fixed cost has no cost driver for short term we only choos cost
drivers for the variable ones.
Here transpiration & delivery cost were allocated base on no. of units. Because this cost can
increase or decrease based on the change on no. of units. Then we allocated electricity bill
based on machine hours as the more hours we will use the machine the more will be the bill (vice
versa).
Total Taka
(140 Unit)
Total Direct Material
52500
30800
T. Manufacturing overhead
4500
Page 15 of 29
1000
Electricity Bill
800
Advertisement
6000
Delivery cost
3000
10800
Total Cost-
98600
140
704.29
Taka
Simple costing
704.29
ABC costing
705
Differences
0.71
Simple cost
{799*-704.28)704.29}
13.45%
13.33%
{799* taka-705)/705}
*From the number 13
Page 16 of 29
We compare the Profitability of each unit of the product under simple costing system and ABC
system for our product, ABC cannot make much different result than the simple casting system.
But as ABC casting provide better measurement and not biased like simple costing method, we
will use this method.
In Taka
Full cost
Mark up (704.2813.5%)
Selling price
704.28
95.08
799.36
Page 17 of 29
Sales Budget
For the month ended
Product
Unit
Selling price
Revenue
140
799 taka
111,860 taka
We are planning to sell all our 140 units of lamp in a month at a selling price of 799 taka in order
to make a total revenue of 111.860 taka.
Schedule 2:
Production Budget
For the month ended
Units
Budgeted sales
Add: Ending finished goods inventory
Total requirements
Less: beginning finished goods inventory
Units to be produced
140
14 *
154
000
154
Page 18 of 29
Schedule 3A:
Glue
Wire
Socket
Holder
Thread
Total
154unit
s
154
units
770 feet
154 units
154 units
308 ounce
Cost Budget
Purchase in this period
Ball (154u*70tk)
10780tk
Glue (154u*120tk)
18480
tk
Wire (770ft.*8tk)
6160 tk
Socket (154u*15tk)
2310 tk
Holder (154u*30tk)
Thread(308ounce*50tk
)
4620 tk
15400 tk
10780
18480
6160
2310
4620
15400
57750 tk
Page 19 of 29
Schedule 3B:
Glue
Wire
Socket
Holder
Thread
154unit 154unit
770 unit
154 unit
154 unit
308 ounce
31 unit
31 unit
154ft.
31 unit
31 unit
62 ounce
185unit 185unit
924 ft.
185 unit
185 unit
370 ounce
------
---------
---------
---------
---------
924 ft.
185 unit
185 unit
370 ounce
total
--------
185unit 185unit
Cost Budget
Purchase in this period
Ball (185u*70tk)
Glue (185u *120tk)
12950
tk
22200
tk
Wire (924ft.*8tk/ft.)
7392 tk
Socket (185u*15tk)
2775 tk
Holder (815u*30tk)
5550 tk
Thread(370ounce*50tk
)
18500 tk
12950
22200
7392
2775
5550
18500
69367 tk
Page 20 of 29
Schedule 4:
Product
Globe Shaped
lamp
Units to be
produced
154 units
(Schedule 2)
Schedule 5:
Direct
manufacturing
labor hour per
unit
1.1 hour
Total hours
169.4
Hourly wage
rate
200 taka
Total cost
33880 taka
220*
4000
Cleaning cost
300
4520 taka
*Rounded up
Page 21 of 29
Schedule 6A:
Input
Ball
70
70
Glue
120
120
Wire
5 feet
40
Socket
15
15
Holder
30
30
Thread
50
2 ounce
100
Direct Labor
200
1.1
220
Manufacturing overhead
-----
-----
29.35*
Direct material:
Total cost/unit
624.35
Page 22 of 29
Schedule 6B:
Total
Ball
31 units
70
2170
Glue
31 units
120
3720
Wire
154 feet
1232
Socket
31 units
15
465
Holder
31 units
30
930
Thread
62 ounce
50
3100
Direct material:
11617 taka
Finished Goods:
Globe Shaped Lamp
14 units
624.35
8741*
20358 taka
*Rounded up
Schedule 7:
Taka
3A
57750
33880
Taka
Page 23 of 29
Manufacturing overhead
4520
96150
8741
87409
From Schedule
Revenue
111860
Less:Cost of goods
sold
Gross margin
87409
24451
Less:Operating cost
Selling cost
4800*
Advertisement cost
6000*
OPERATING
INCOME
(10800)
13651
Revenue
799
111860
623.57
87300
Contribution Margin
175.43
24560
80.71
11299
OPERATING INCOME
94.72
13261
Page 25 of 29
Page 26 of 29
Comments:
These means that if we sale 140 units, a percentage change in sales and contribution margin will
result in 1.85 times change in operating income.
Units
Sold
Sellin
g
Price
Key Assumptions
Reven Variab Total
ue
le Cost Variabl
per
e cost
unit
Contrib
ution
Margin
Fixed
Cost
Budgeted Operating
Income
In Taka
Master
Budget
Case A
12%
Increase
Case B
16%
Decline
140
799
111860
623.57
87300
24560
11299
13261
Change
from
master
budget
0
157
799
125443
623.57
97900
27543
11299
16,244
22.49%
118
799
94282
623.57
73581
20701
11299
9402
-29.10%
For our sensitivity analysis we have assumed that changes in demand directly affect our unit
sales. a) In case A, a 12% increase in demand will increase our unit sales to 157units (rounded).
This will decrease our total variable cost and contribution margin. As a result, our operating
income will also change from 13261 taka to 16,244 taka, which is an increase of 22.49%.
Page 27 of 29
Margin of Safety:
Change in Total Contribution Margin Ratio = CM/Sales
= 27543/125443
= 0.22
Change in Break Even sales = Fixed Cost/ CMR
= 11299/0.22
= 51359.09 Taka
Change in Margin of safety = Total budgeted revenue Breakeven sales
= 125443-51359.09
= 74083.91 Taka
This means that we are safe upto 74083.91 taka decrease in our sales. A decrease in sales less
than 74083.91 taka will make profit but a decrease in sales greater than 74083.91 taka will cause
loss.
b) In case B, a 16% decrease in demand will decrease our unit sales to 118units (rounded). This
will decrease our total variable cost and contribution margin. As a result, our operating income
will also change from 13261 taka to 9402taka, which is a deccrease of -29.10%.
Margin of Safety:
Change in Total Contribution Margin Ratio = CM/Sales
= 20701/94282
= 0.22
= 11299/0.22
= 51359.09 Taka
Change in Margin of safety = Total budgeted revenue Breakeven sales
= 94282-51359.09
= 42886.91 Taka
This means that we are safe upto 42886.91 taka decrease in our sales. A decrease in sales less
than 74083.91 taka will make profit but a decrease in sales greater than 42886.91 taka will cause
loss.
Page 29 of 29